October 17, 2002

News Release: Systems Xcellence's Fiscal 2003 Second Quarter Revenue Increases 26%

Systems Xcellence Inc., (TSX: SXC) a leading provider of healthcare information technology solutions throughout the pharmaceutical supply chain, today announced its fiscal 2003 second quarter results for the three month period ended August 31, 2002.

Highlights of the quarter included:
- Revenue of $11.4 million compared with $9.0 million in the second quarter of fiscal 2002;
- EBITDA margins of 18% compared with 7% in the second quarter of fiscal 2002;
- Net income of $482,287, or $0.01 per share (basic), compared with a net loss of $3.7 million, or ($0.12) per share (basic) in the second quarter of fiscal 2002; - Cash generated from operations of $2.3 million compared with cash used in operations of $2.1 million in the second quarter of fiscal 2002;
- License contract win with a large Managed Care Organization (MCO) valued at $3.0 million;
- Four Application Service Provider (ASP) contract wins and renewals totaling $7.2 million, of which $6.3 million is to be earned over three years, and $900,000 is to be earned over two years; and
- Backlog of $65.0 million, which reflects a $3.5 million increase from the first quarter of fiscal 2003.

"With major contract wins in both our license and ASP business, the second quarter saw SXC continue to execute on the key components of our growth strategy," said Gordon S. Glenn, President & CEO of SXC. "Our license contract win with one of the largest MCOs in the U.S. fortifies our reputation as a leading vendor of scaleable and secure transaction management systems to companies throughout the pharmaceutical supply chain. In addition, our recent ASP announcements reinforce our strategy of targeting our ASP solutions at mid-sized PBMs and MCOs, while significantly growing our existing base of recurring transactions. In an environment characterized by reduced spending on new technology, healthcare IT expenditures remain steady as customer demand continues to be driven by an aging population, the escalating costs of drug prescription fulfillment, and the impending compliance deadlines associated with Health Insurance Portability and Accounting Act (HIPAA) legislation. We look to further capitalize on this market opportunity in the months ahead."

Financial Results

Revenue increased $2.4 million or 26% in the second quarter of fiscal 2003 to $11.4 million from $9.0 million in the comparable period in fiscal 2002. During the second quarter, revenue of a recurring nature consisting of ASP/Switching and maintenance revenue increased from $4.9 million or 54.4% of total revenue in the comparable prior quarter, to $5.6 million or 49.3% of total revenue in the current quarter. Revenue for the six-month period ended August 31, 2002, was $22.5 million compared to $17.1 million during the same period in the prior year. Recurring revenue increased from $9.7 million or 56.5% of total revenue, to $11.3 million or 50.0% of total revenue for the six-month period ended August 31, 2002. The decline in recurring revenue on a percentage basis is primarily a result of significantly increased integration and consulting revenue for the three and six-month periods.

Gross margin for the three month period ended August 31, 2002, was 52% compared with a gross margin of 55% in the same period of the prior year. Gross margin for the three-month period reflects a higher percentage of integration and consulting revenue and reduced licensed software revenue earned during the second quarter of fiscal 2003. Gross margin for the six- month period ended August 31, 2002, remained steady at 54% compared with a gross margin of 54% in the first six months of fiscal 2002.

Reflecting management's focus on cost control, non-project related expenses for the three-month period ended August 31, 2002, decreased 12% from $4.3 million to $3.8 million. For the six months of fiscal 2003, non-project related expenses totalled $8.0 million, a 25% decrease from $10.6 million in the same prior year period.

The Company recorded earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.1 million during the second quarter, compared with EBITDA of $661,212 during the same period of fiscal 2002. EBITDA for the first six months of fiscal 2003 was $4.0 million compared to EBITDA of negative $3.1 million during the same period in fiscal 2002, a $7.1 million improvement. The decline in non-project related expenses reflects an improved utilization of resources attributable to revenue generating activities.

For the second quarter of fiscal 2003, the Company reported net income of $482,287, or $0.01 per share (basic), compared to a net loss of $3.7 million, or $(0.12) per share (basic), for the corresponding period in fiscal 2002. Net loss before goodwill amortization for the second quarter of fiscal 2002 was $1.0 million or $(0.03) per share (basic). During fiscal 2002, SXC amortized approximately 50% of the goodwill resulting from its March 2001 acquisition of ComCoTec, Inc. As a result, under recent CICA guidelines related to goodwill, SXC has not amortized any goodwill associated with the acquisition in the first half of fiscal 2003, and is instead subject to an annual impairment test. For the first six months of fiscal 2003, SXC recorded net income of $810,210, or $0.02 per share (basic), compared to a loss of $11.9 million during the same period in fiscal 2002. This $12.7 million improvement in net income is largely attributed to a $5.4 million increase in revenue, a $5.5 million reduction in goodwill amortization, a $4.2 million reduction in overhead costs, and is offset by a $2.5 million increase in project costs.

The Company generated $2.3 million in cash from operations during the second quarter of fiscal 2003, compared to cash used in operations of $2.1 million for the same period of fiscal 2002. This increase is primarily the result of cash collections from an increased revenue base and reduced operating expenses. For the first six months of fiscal 2003, SXC generated $3.7 million in cash from operations compared with cash used in operations of $1.7 million during the same period in fiscal 2002.

At the end of the second quarter of fiscal 2003, the Company's contract order backlog improved $3.5 million to $65.0 million. Management anticipates that this contracted order backlog will be realized over a three-year period.

"Our financial results for the first six months of fiscal 2003 reflect our ongoing efforts at driving revenue growth, controlling costs, building our bottom line and strengthening our balance sheet," said Irwin Studen, CFO of SXC. "We remain on target to meet our financial objectives for the year and will continue to explore opportunities to further strengthen our operational and financial position."

Fiscal 2003 Guidance

Originally released in conjunction with its fiscal 2002 year-end financial results, SXC's management maintains the following guidance for fiscal 2003 -- First, it is projecting revenue in a range of $44-47 million; second, EBITDA in a range of $7.2-8.2 million; and third, a return to net income profitability with an EPS target range of $0.03-$0.06.

Notice of Conference Call

SXC will be holding a conference call on October 17, 2002 at 10AM (ET) to discuss its second quarter fiscal 2003 financial results. Mr. Gordon S. Glenn, President and CEO, will host the call.

A live audio webcast of the call will be available at www.financialdisclosure.ca and www.sxc.com. Webcast attendees are welcome to listen to the conference in real-time or on-demand at your convenience. A taped replay of the call will be archived at those sites for 90 days. A replay of the call can also be heard by dialling 1-800-408-3053 or 416-695-5800 and entering the reference code 1286693. The taped call is available until October 24.

About Systems Xcellence, Inc.

Systems Xcellence (SXC) is headquartered in Milton, Ontario with offices and processing centres in Lombard, Illinois, Scottsdale, Arizona and Victoria, British Columbia. SXC is a leading provider of healthcare information technology solutions and services to the healthcare benefits management industry. The company's product offerings and solutions combine a wide range of software applications, application service provider (ASP) processing services and professional services, designed for many of the largest organizations in the pharmaceutical supply chain, such as pharmacy benefit managers, managed care organizations, retail pharmacy chains and other healthcare intermediaries.

The company's products offer its customers comprehensive pharmacy benefits management, claims switching and processing, drug dispensing, data wareh